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WTI futures and Brent futures spiked to highs of the day after a surprise draw on US oil stocks. EIA figures showed a 745k barrel drawdown vs an expected build of more than 4m barrels. Stocks at the key Cushing, Oklahoma hub feel by 3m barrels, the first such draw since February. Gasoline inventories fell 3.5m barrels vs 2.2m expected. Distillates continued to build at 3.5m. Refinery inputs averaged 12.4m bpd, which was 0.6m bpd less than the previous week’s average.

WTI (Aug) rallied above $27.80 before paring gains to trade roughly in the middle of today’s range around $27.30. Front month (Jun) oil was up at $26.30. The draw on inventories, particularly at Cushing, will spur hopes demand is coming back as economies reopen and that we are not approaching ‘tank tops’ as swiftly as feared. However there are still risks that at least for the Jun and Jul contracts we see high levels of volatility as we approach expiry.

OPEC updates demand forecast, sources suggest further production cuts

Earlier, OPEC said crude oil demand in 2020 would fall even further than previously thought. In 2020, world oil demand growth is forecast to drop by 9.07m bpd, an adjustment lower of more than 2m bpd from the prior report.

In its monthly report it said the contraction is concentrated in the second quarter and mostly in OECD Americas and Europe, with transportation and industrial fuels affected the most.  As such, OECD oil demand is now revised lower by 1.20m bpd while non-OECD oil demand growth was adjusted down by 1.03m bpd.

Demand contraction in 2020 can be mitigated with sooner than expected easing of government COVID-19 related measures, and faster response of economic growth to the implemented extraordinary stimulus packages,” OPEC said.

In terms of supply, a raft of announcements from OPEC members has pointed to greater cuts than previously estimated. In addition, sources have talked about extending the 9.7m bpd cuts beyond June. I think this mainly reflects huge demand destruction and nowhere to put the crude more than increased willingness to ‘take one for the team’. Meanwhile the cartel believes the collapse in prices will further affect non-OPEC supply. Non-OPEC oil supply in 2020 is revised down further by almost 2m bpd from the previous projection, and is now forecast to decline by 3.5m bpd.

The main revisions of the month are based on production shut-ins or curtailment plans announced by oil companies – including the majors – particularly in North America. Globally, excluding the OPEC++ 9.7m bpd cut, around 3.6m bpd of production cuts have been announced, so far, in response to the lack of demand, low oil prices, excess supply and limited storage capacity. And yet in April, OPEC crude oil production increased by 1.8m bpd from March.

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